Canberra, 11 September 2006

Peter Slator, chairman of the Australian Food and Grocery Council and chairman of Unilever Australasia;

Members of the board of the Australian Food and Grocery Council;

Roger Corbett, CEO of Woolworths;

Ladies and gentlemen,

Introduction

There’s an area of shops and restaurants called Manuka about five minutes away from Parliament House. It’s very busy at this time of night – a perfect opportunity to head down there and ask some people what comes to mind when they think about Australian manufacturing.

We don’t need to head for Manuka to guess what they would say. We know that a lot of people would mention our car industry, which achieved record exports in 2005-06. Others might talk about our exports of pharmaceuticals, which are also at record levels.

Many of the people we interviewed just wouldn’t think of food and groceries, even though it’s our most important manufacturing industry. It employs 200,000 people and is the fastest growing manufacturing employer in regional areas. It’s also one of our key export industries: Australia’s processed food exports amounted to $14.9 billion in 2005-06.

The Government is helping you succeed in a tough global market. We have made Australia’s economy strong. We are helping you become more competitive by encouraging innovation and building better infrastructure. We are creating new export opportunities through our ambitious trade agenda.

Securing a stronger economy

The Government’s responsible economic management has made the economy strong:

• The unemployment rate is now at about its lowest level in a generation 4.9 per cent.
• We have created more than 1.9 million new jobs in the last ten years. More than a million of those jobs are full time positions.
• Real wages have increased by 16.8 per cent

We are putting measures in place to lock in Australia’s prosperity, such as our reforms to workplace relations. Our reforms have given you more flexibility when you employ staff and the ability to make your businesses more productive.

Our reforms are also good news for jobseekers. Since WorkChoices came into effect, Australian employers have created 175,000 new jobs.

• One of the reasons is that WorkChoices exempts small businesses from the unfair dismissals law that was brought in by the Keating Government.
• This law used to discourage small businesses from hiring new staff, because they knew they couldn’t afford to defend an unfair dismissal case if he or she didn’t work out.
• The exemption will greatly benefit the 60,000 manufacturing businesses in Australia that employ less than a hundred people – not to mention the people who will now be able to get jobs. Many of those companies are, of course, in the food processing sector.

Labor would abolish our workplace reforms, which would make it harder for you to run your business. You could forget about those new jobs and the buoyant domestic economy that they have created.

Innovation

The Government is helping the processed food industry deal with global competition by encouraging innovation through the National Food Industry Strategy (NFIS). We established it in 2002, following the success of Supermarket to Asia.

The National Food Industry Strategy is broader than Supermarket to Asia, but it has many elements of continuity – especially Enzo Allara. He was on the board of Supermarket to Asia and has continued his magnificent role on the board of the food industry strategy.

Under the strategy, we’ve invested over $100 million to help more than 70 companies commercialise new ideas. For example:

• Australian Garlic Producers in Mildura is developing a world class garlic processing plant, to overcome the lack of post-harvesting mechanisation in Australia;
• Geraldton Fishermen’s Cooperative is improving live export packaging for Western Rock Lobsters; and
• Polkinghornes in Victoria are developing software for a new computerised beef processing system.

We’re also supporting food processors through Austrade. A good example is Austchilli in Bundaberg, which now exports its pureed chilli products to 14 countries in Asia, the Middle East and Europe. The company attributes much of its success to the support of the Bundaberg Export Hub.

Efficient infrastructure is essential

Our processed food exports depend on the ability of the transport system to handle Australia’s growing volume of freight traffic.

The Bureau of Transport and Regional Economics has predicted that the amount of freight moved around Australia will double in the next two decades.

The Government is responding to the challenge by increasing our investment in transport infrastructure. We are putting $15 billion into Australia’s roads and railways and improving the way they are planned.

Only last week, we released a major new study into freight demand and capacity on the Melbourne-Sydney-Brisbane rail corridor.

We are already investing $2.4 billion to upgrade the existing railway line. The study confirms that we are spending the money on the right projects, such as replacing the existing signalling system, which was state of the art in 1930.

The study concludes, however, that we will need to build a second railway between Melbourne and Brisbane by 2019 to help meet the growing transport task. It identifies four possible route options, with costs ranging from $3.1 billion for a far western route to $10 billion for a route along the coast.

This issue has the potential to affect every business that despatches freight up and down the east coast. The cost of not going ahead with the inland railway is that the Pacific Highway, the Hume Highway and the existing rail line would become clogged with traffic.

It would take you longer to ship your products. You would find it more difficult to deliver your exports on time.

We’re not going to let that happen. There will be years of planning ahead, but the Government will be making the right decisions about Australia’s transport system for our long term future.

Australia’s trade policy approach

We are supporting our exporters with the most ambitious trade policy agenda in Australia’s history.

We are seeking to free up world trade through the Doha Round of negotiations in the World Trade Organization.

We want to free up the trade in industrial goods, services and most importantly in agriculture, the most distorted sector of world trade. On average, agricultural tariffs are more than three times higher than tariffs on non-agricultural goods.

The prices our exporters receive are depressed by the farm support programmes run by many developed countries.

An ambitious outcome to the Round could increase the value of our major agricultural exports by 15 per cent in 2011, compared to their value if the existing trade barriers continue. It could also lift 32 million people in the developing world out of poverty.

The negotiations on the Round are suspended at the moment because the discussions on agriculture broke down.

My goal over the coming months will be to encourage the major players to get back to the negotiating table.

Next week, I’ll be chairing a meeting of the Cairns Group – 18 agricultural exporting countries that account for more than a quarter of the world’s agricultural trade. It will be an important early opportunity to discuss how to revive the negotiations with the head of the WTO, Pascal Lamy, the US Trade Representative, Susan Schwab, and the US Agriculture Secretary, Mike Johanns.

Bilateral and regional free trade agreements

In addition to our multilateral trade efforts, Australia is also looking for trade results through bilateral and regional agreements.

These can often get faster commercial results than the multilateral process. They can also address non-tariff barriers like government procurement, competition, intellectual property and investment controls.

Australia has successfully negotiated FTAs with Singapore, the United States and Thailand. We also have our closer economic relationship (CER) agreement with New Zealand.

When the US free trade agreement came into effect, two-thirds of America’s tariffs on our agricultural products immediately fell to zero. It has also expanded our dairy export quotas.

One food processor that has benefited from the agreement is King Island Dairy, which has now shipped eight container loads of speciality cheeses to the US. King Island cheeses are now available in more than half of Safeway’s 1,500 stores in the United States.

Australia’s current FTA negotiations

We are currently negotiating FTAs with Malaysia, the ASEAN countries in conjunction with New Zealand, and of course with China.

China's rapid development is one of the most important events of our time. It is already the world’s third largest trading nation after the United States and Germany.

China’s economic growth has averaged 9½ per cent over the past two decades. Its growth and rapidly increasing affluence means there are enormous long-term opportunities for Australian food suppliers, particularly in urban areas where a growing number of people shop at supermarkets rather than in the traditional wet markets.

There is also considerable potential for Australian exporters to supply restaurants and caterers. Ice cream is a good example. The demand for ice cream in China is growing at more than 9 per cent a year, even though less than 7 per cent of urban households have freezers. Quite simply, people are buying it when they eat out, and they are eating out more often.

A company based in south east Queensland, Frosty Boy, has secured contracts in China to supply ice cream to a fast food chain called DICOS, which has more than 600 outlets across China.

The company had to change its flavours to succeed in the market – for example, it is producing a special ‘vanilla’ flavour for China that is much milkier than its Australian product.

Exports now make up more than half of its total business, and the company has increased its staff numbers by a third.

We need to build further on our success in China, and that’s why we need a comprehensive free trade agreement.

Our negotiators held their sixth round of discussion with China last week. We had hoped to start negotiations about market access for goods, but the Chinese agreed that they still needed to gather more information.

The next negotiating round is scheduled for early December in Australia. Our hope is that it will see the start of negotiations about market access for goods, services and investment. We have told China that negotiations on services and investment market access must start before the end of 2006.

We are seeking commitments from China to remove its tariff and non-tariff barriers on Australian exports, including addressing its tariff rate quotas on our exports of wool, wheat, cotton, rice and sugar.

The negotiations have a long way to go and will be difficult. We will take as long as we need to achieve a commercially valuable outcome for Australian industry.

Any agreement will need to be comprehensive. It will need to be completed as a single package, and will need to maintain the integrity of our manufacturing industry plans.

We are carrying out a feasibility study into a possible FTA with Japan, and doing an analysis of the implications of an FTA with the Gulf
Co-operation Council, which consists of the United Arab Emirates Bahrain, Kuwait, Oman, Qatar and Saudi Arabia.

Supporting cheaper fuels

I want to conclude by turning back to a domestic issue: the high price of fuel.

It’s affecting your business costs, by making your inputs and the cost of freight more expensive. It’s also causing real pain for families in regional Australia, who don’t have the option of taking public transport.

The Government is working to make cheaper alternative fuels more available.

Australia’s most important alternative transport fuel is LPG. It’s about 40 per cent of the price of unleaded petrol.

The Government is now paying a $1,000 grant to private purchasers of a new LPG powered vehicle. We are paying a $2,000 grant to private owners who have their existing vehicles converted to LPG.

As a result of the rebate, the number of LPG conversions being carried out has doubled from about 4,000 in July to more than 8,000 in August.

Ethanol blended fuel (E10) is now available at 260 service stations across Australia. Until recently, the major fuel companies sold it at the same price as regular unleaded. It should be up to four cents per litre cheaper, because ethanol receives a government subsidy.

I proposed that the ACCC should monitor the price of E10 and publish reports showing the difference between the price of E10 and unleaded petrol across the country.

The ACCC is now doing the monitoring. Caltex and BP immediately discounted the price of E10 by 3 cents per litre.

From 1 October, we will provide service stations with grants of up to $10,000 to help them install new pumps or convert their existing pumps to handle E10.

Service stations will be able to receive extra grants of up to $10,000 if they reach pre-determined sales targets for E10.

The recipients of the grants will have to sell E10 at less than the price of unleaded petrol.

Coles and Woolworths now control more than a thousand service stations through their joint ventures with Shell and Caltex.

You may be wondering how many of those service stations sell E10 at the moment.

I’ll tell you the answer.

One.

It’s the Woolworths service station at 131-135 Sheridan Street in Cairns. That’s a long way to drive to use your shopper docket.

Of course, there are 47 Coles Express service stations that sell Optimax Extreme, a 100 octane fuel that contains 5 per cent ethanol. But it is even more expensive than premium unleaded. You’re not going to use it to fill up your family car so you can drive the kids to school.

Ladies and gentlemen, the Government is doing our part to make cheaper alternative fuels more available to Australians.

Today, I am calling on Coles and Woolworths to do their part and make E10 available at all their service stations.

It should be up to four cents per litre cheaper than regular unleaded, because ethanol production is subsidised by taxpayers. This discount should be in addition to any discounts they provide through their shopper docket schemes.

Conclusion

So in conclusion, the Government is working to lock in the prosperity created by our strong economy. We are helping the food industry to become more competitive. We are creating new export opportunities. We are focused on making the decisions that are needed to secure Australia’s future.

Thank you.